Software Lawsuit
Marc is a patent attorney and shareholder in the intellectual-property law firm of Poms, Smith, Lande & Rose in Los Angeles, CA. Marc specializes in computer law and can be contacted at 73414.1226@compuserve.com.
Litigation over software usually comes in two flavors: disputes over intellectual-property rights (patents, copyrights, trade secrets, and trademarks) and disputes over contracts. Typically, both types of disputes are involved in a single lawsuit.
Before going into a lawsuit, whether as a plaintiff or defendant, you need to study the facts and applicable law. Only then can you determine whether or not litigation is worthwhile. Except in exigent circumstances, efforts to resolve a dispute before proceeding with litigation should be made. A letter fairly outlining the problems should be sent to the other side. Diplomacy is critical. The letter should be prepared by an attorney. (Whether it should be sent under the signature of the attorney will depend on the circumstances.) Don't make the mistake of trying to save money at this critical stage by preparing the letter yourself. More often than not, such a letter is ineffective or, worse, unknowingly makes damaging statements which end up being quoted to the jury.
Always formulate clear objectives before taking the final plunge. Litigation is like a long ocean voyage. There are good days and bad. Knowing where you are going and keeping your eye on that destination will give you comfort and make the voyage meaningful. Never act out of anger. If you do, you are likely to regret it.
You begin a lawsuit by filing a "Complaint" with a court and paying a filing fee, typically a few hundred dollars. That is all it takes! The clerk of the court will issue an order to the defendant (Summons) to file his response to the Complaint with the court within a stated number of days. Copies of the Summons and Complaint are then delivered to (served on) the defendant.
Plaintiffs have the initial choice of courts. Typically, plaintiffs choose a court that is convenient or favorable to the plaintiff, or inconvenient or unfavorable to the defendant. If the plaintiff is seeking to enforce a patent or copyright, the Complaint must be filed in a federal court. Otherwise, the Complaint must be filed in a state court, unless the plaintiff and defendant are citizens of different states, in which case the plaintiff can usually sue in either a federal or state court.
The defendant must respond to the Complaint by filing papers with the court within the deadline stated in the Summons. If he does not, his "default" will be entered, and the case will proceed without his position being heard.
One way to respond is to file an "Answer." This is a document that either admits or denies each allegation in the Complaint and alleges defenses. At this time, the defendant is usually entitled to assert any claims he has against the plaintiff in what is called a "counterclaim" or a "cross-complaint."
Instead of filing an "Answer," the defendant can sometimes move to dismiss the case. One reason might be that he has not had sufficient contact with the location in which the court sits. Defects in the allegations in the Complaint can also often be raised at this time.
Proving either of these claims does not necessarily ensure dismissal of the lawsuit. In some cases, the court will transfer the lawsuit to a more convenient location or give the plaintiff an opportunity to amend his Complaint to correct the deficiencies.
In software lawsuits, a battle over a "temporary injunction" is often waged in the beginning of the case. Frequently, it ends the case.
A "temporary injunction" is an order from the court restraining the defendant from committing some act. In software cases, it typically bars the defendant from selling his software or using information he obtained from the plaintiff. It is usually sought immediately when the lawsuit is filed, or shortly thereafter.
Temporary injunctions also come in two flavors. One is the "preliminary injunction," which usually can be obtained within a few weeks after the lawsuit is filed and lasts until the case is over (that is, until the court can decide whether it will enter a "permanent injunction" following trial). The other is a "temporary restraining order," which can sometimes be obtained within a matter of hours after the lawsuit is filed and usually lasts for about ten days (until the court can determine whether it will issue a "preliminary injunction").
Temporary injunctions give the plaintiff a tremendous advantage. Within a very short time after the lawsuit is filed, a plaintiff can shut down a competitor without ever presenting his case to a jury.
To protect the defendant, the plaintiff is usually required to make a strong showing that he is likely to prevail at trial. Usually, he must also demonstrate that he would suffer "irreparable harm" if he is forced to wait until trial to obtain a permanent injunction. Usually, the court will only issue a temporary injunction if the defendant has not yet begun the objectionable activity or, if he has, only did so very recently. The court also usually considers whether the harm to the defendant from the injunction would outweigh the benefit to the plaintiff.
To obtain a temporary injunction, the plaintiff must post a "bond." This is a commitment--typically by a bonding company--to pay the damages which the defendant might suffer if the Court ultimately determines that the injunction should not have been issued. A bond can usually be purchased for a few percent of its face value. Except for extremely wealthy companies, however, bonding companies usually require the plaintiff to fully collateralize the bond. A plaintiff who does not have sufficient assets to collateralize the anticipated bond (or a sufficiently strong stomach to bear the risk of losing his collateral) should not apply for a temporary injunction. He would just be wasting his time and money.
Settlement often follows the decision on whether to issue a preliminary injunction. If it is issued, the prospect of having the injunction lifted--typically one or two years later at trial--is often of little value to the defendant. If the preliminary injunction is denied, on the other hand, the denial often signals that the plaintiff is likely to lose at trial, making continued litigation unattractive. Winning the fight over a preliminary injunction, therefore, is often of decisive importance.
"Discovery" is the name given to the formal legal process of obtaining information needed for trial.
There are several types of discovery. One is the "deposition," a process during which a witness answers questions under oath in front of the lawyers and a court reporter, but not in front of the judge or jury or in a courtroom. This is the type of discovery that received publicity in the O.J. Simpson civil case. A transcript (and sometimes even a videotape) is made of the testimony and can be presented at trial. A deposition can be taken of any witness, whether or not he is a party to the case.
Written requests to examine documents and tangible things (computers and software, for instance) can also be made. In response, the documents and tangible things usually must be produced for inspection and copying. This type of discovery can usually be obtained from any individual or company, whether or not the individual or company is a party to the suit.
A third type of discovery is called "interrogatories." These are written questions which must be answered in writing and sworn to as being accurate. Unlike depositions and document productions, only a party to the lawsuit may be compelled to answer interrogatories.
Discovery begins after the Complaint is filed and typically proceeds up until the time of trial. The intensity of the efforts which are made vary widely. Responding to discovery can be quite time consuming and disruptive to business.
Software litigation often involves a dispute over technical issues. Infringement cases often examine whether the software utilizes a particular technology. Contract cases often focus on whether the software is functioning correctly. A software expert is typically needed to provide testimony on these issues.
Experts in other fields are also often required. An accountant, for example, may be needed to give testimony about the amount of damages that have been incurred. In patent cases, a legal expert may be needed to give testimony about the patent procurement process.
Selection of the right experts is very important in software cases. The technical issues are usually well beyond the ability of the judge or jury to understand. Their only recourse is to decide whether to trust your expert or your opponent's. PhDs and university affiliations are among the most coveted credentials. Extensive practical experience in the technology is also impressive. Although a litigant is sometimes tempted to use one of his own employees as an expert, this is usually ill advised, even if the employee is well qualified. The close relationship is likely to adversely impact the credibility of whatever is said.
It is often advantageous to hire the experts in the beginning of the case. They can help guide the discovery process, assist in the assessment of the case, and provide testimony if a temporary injunction is sought.
If there is no credible basis to a particular claim or defense, that claim or defense can sometimes be removed from the case by asking the court to enter "summary judgment" against it.
Summary judgment can be sought at almost any stage of the proceeding. If the defect is a substantial and pervasive one, obtaining summary judgment against the defect can often radically alter the strength of one side's position. If the defect is of sufficient significance, summary judgment can end the entire case. Obtaining summary judgment against a claim or defense, therefore, can often be of great importance.
The absence of credibility is not the criterion for obtaining summary judgment. Rather, the party seeking summary judgment must demonstrate that there is "no genuine issue as to any material fact."
Clients often have a great deal of difficulty understanding when a particular defect is appropriate for summary judgment. Although I have just accurately quoted the rule, its application is sometimes difficult to appreciate. The key is to distinguish between a dispute over a "legal" issue and a dispute over a "factual" issue.
Consider, for example, a lawsuit for copyright infringement. The plaintiff alleges that the defendant reverse-
engineered his object code, extracted the underlying algorithm, and incorporated this algorithm in a competing product.
Having written the code himself, the defendant knows that he did not reverse-engineer the plaintiff's code and, in fact, has never even seen the plaintiff's software. The defendant has also been reading my columns and knows that it might not even be a copyright infringement to do exactly what the plaintiff is contending, namely, to reverse-engineer someone else's software and to use the underlying algorithms.
The defendant therefore files a motion for summary judgment. He submits his own affidavit in which he states that he never saw the plaintiff's software, let alone decompiled it. He also submits the affidavits of five of the most renown experts in the field who state that the algorithms in the plaintiff's and the defendant's software are not similar in any way.
In opposition to this motion, the plaintiff submits only his affidavit. He states that he saw the defendant running his software and that two of the algorithms in the defendant's software are absolutely identical.
The defendant then introduces a criminal record showing that the plaintiff has five felony convictions for perjury and has served 20 years in San Quentin for these crimes. The record shows that, in the past, the plaintiff sued five software companies and, in each case, perjured himself by falsely claiming that he witnessed copying.
So how should the judge rule on the question of summary judgment? Let's break the problem down.
First, it is obvious that the plaintiff's claim of copying is very unlikely to be believed. Notwithstanding, the affidavit that the plaintiff has submitted (although obviously lacking credibility) has nevertheless demonstrated that two material factual issues are in dispute--whether the defendant saw the plaintiff's software and whether the defendant's software contains the same algorithms. Summary judgment on this basis cannot be granted.
On the other hand, the summary judgment motion raises a legal issue--whether one company is entitled to reverse-
engineer object code, extract its underlying algorithms, and use those extracted algorithms. Although this issue is also in dispute, it is not a factual issue. It is a legal issue. Legal issues can and will be resolved on summary judgment. If the judge believes that copyright law does not bar this type of copying (which is a distinct possibility), summary judgment will be granted. It doesn't matter whether the defendant copied, because the court can conclude that this type of copying would be legal in any event.
Television has already done my job in this area. What you may not know is that the court has the authority to break the case into pieces and to try certain pieces first. This is known as "bifurcation."
Bifurcation can be very useful. For example, suppose the court concluded in the aforementioned hypothetical case that the type of copying alleged by the plaintiff would, if proven, constitute copyright infringement. Although the court would therefore have to deny summary judgment, it could nevertheless bifurcate the issue of copying and try it first. This would, at least, give the defendant the opportunity to dispose of the case without having to spend time and money developing and trying all of the other issues which are normally involved in a copyright case.
Generally, it takes between six months and four years for a case to come to trial. The average is about one and one-half years.
Every civil litigant usually has an absolute right to one appeal. However, there is usually no right to have the appellate court's decision reviewed, but a second review can sometimes be obtained.
During the course of a lawsuit, the judge usually makes many decisions. Usually, however, no decision can be appealed until the trial has concluded.
If the defendant loses, a judgment for money is normally entered against the defendant. In intellectual-property cases, as well as certain types of contract cases, a permanent injunction is also usually entered against the defendant.
The filing of an appeal normally does not excuse the defendant from complying with the permanent injunction pending appeal, nor the plaintiff from executing upon the judgment for money. Usually, however, the defendant can prevent execution of the monetary portion of the judgment during appeal by posting a bond. The trial judge also usually has the discretion to stay enforcement of the permanent injunction pending appeal, although this discretion is not normally exercised.
Now I come to the part that nobody wants to talk about.
Let me put it in the simplest terms: Software lawsuits usually cost lots of money. In an effort to ensure fairness, our judicial system has created too many procedures. Although some judges are beginning to realize that the system has gone "too far," many are unwilling or unable to take active control of their cases, allowing one side to be at the mercy of the other.
It costs between $100,000 and $1 million to take most software cases through trial. Some cases will even cost more, much more. Although you can control the efforts your attorney makes, you usually cannot control the efforts that the opposing side makes. For this reason, it is very difficult to estimate the costs of a case.
Copyright cases tend to be the least expensive; patent cases, the most expensive. Trade secret and contract cases usually fall somewhere in between.
The amount at stake usually is more important than the type of case. If $100 million is at stake, several million dollars in litigation expenses should be expected. Small amounts at stake, on the other hand, do not necessarily mean a small bill. The required procedures are numerous and must be followed, no matter how little is in controversy. Some litigants, moreover, use lawsuits as a means to financially drain their competitors, resulting in efforts disproportionate to what is involved.
Lawsuits are one of the few ways to lawfully protect individual rights in an organized society.
During the past quarter of this century, this laudatory purpose has been badly tarnished by escalating costs. Today, lawsuits are so expensive that only the rich can afford them.
Tell your Congressman or your state legislator that you want the costs reduced. Most lawyers should not mind simpler procedures, because they will simply be performing more of them. This is the way it should be.
In the meantime, proceed cautiously before filing or fighting a lawsuit. Seriously consider settlement at every stage. If you must litigate, discuss the various available procedures with your lawyer, and use them wisely.